ACIT Vs Vallabh Roopchand Bhansali (ITAT Mumbai)
Conclusion: Long term capital loss (‘LTCL’) from off market sale of listed securities could not be offset against current and future capital gains, if it did not fall under the ambit of legitimate tax planning and was a colourable device to evade tax.
Held: Assessee was an individual and had sources of income from investments in shares/mutual funds on the stock exchange for listed securities and also off market for unlisted securities. He got income from his remuneration as a director, income from capital gains, income from house property, and income from interest and dividend. Assessee had earned long term capital gains (‘LTCG’) on sale of listed equity shares through stock exchange which were exempt under sec 10(38). Assessee had also earned LTCG on sale of unlisted securities of INR 6,96,06,436. Further, assessee had incurred LTCL of INR 16,15,92,420 from off market sale of listed securities to sister concern where assessee and his son held 100% ownership. Assessee offset the LTCL from off market sale against LTCG from sale of unlisted securities and balance amounts of LTCL were carried forward. Tax officer deemed those off-market transactions as a colourable device and an artificial transaction undertaken solely with the purpose to claim LTCL from off market sale against LTCG from sale of unlisted securities and carry forward the balance LTCL for offset against any future taxable income. In view of this, tax officer did not allow the offset of LTCL against LTCG and the carry forward. CIT (A) overturned tax officer’s decision, stating that the transactions were part of legitimate tax planning and that the method of sale was a commercial consideration. It was held that assessee should not be encouraged to avoid payment of tax by resorting to dubious methods through colourable devices and that such devices could not be a part of tax planning. Assessee transferred the above mentioned two listed securities to its partnership firm, which in turn no doubt passed the consideration also to assessee. In nutshell, it could be concluded that effectively money was lying with the assessee i.e. consideration paid by the partnership firm to the assessee, securities /shares were still with the assessee i.e. hold by the partnership firm of the assessee, on the other hand without any effective loss of control of the securities and artificial transfer of consideration, he made himself entitled to create a long term capital loss which was available for set off against the current years capital gain and also available for future long term capital gains.
